The plaintiff in each of these three cases sustained very serious injuries of the kind which are normally classified as injuries of the maximum severity. The circumstances of each case are entirely different. But they all raise a common question which is of great importance to the assessment of damages generally.

The law requires that an award of damages must take the form of a single lump sum award which takes account of all the elements of future loss as well as all the loss for the past. The inevitable delay in the provision of compensation for past losses can be made good by the award of interest at an appropriate rate on those elements of the lump sum which relate to the past. The payment as part of the lump sum of losses to be incurred in the future gives rise to a different problem. A discount must be given for the fact that money is being paid now for a loss which will not arise until some date in the future. The rate to be applied in calculating that discount will affect the amount of the total sum to be paid as damages. In the majority of cases a difference of a point or two in the rate of discount will not have a very large impact on the total award. But in cases where the injury is one of maximum severity, and in any other case where the element of future loss forms a major part of the award, a difference of a point or two in the rate of discount will make a very great difference to the result. It may make all the difference between the adequacy and the inadequacy of the award as compensation for the losses which the plaintiff will sustain.

It has often been said that the assessment of damages is not an exact science--that all the law can do is to work out as best it can, in a rough and ready way, the sum to be paid to the plaintiff as compensation for the loss and injury. There remains much truth in these statements, despite the important advances which have been made in the search for greater accuracy. The amount of the award to be made for pain, suffering and loss of amenity cannot be precisely calculated. All that can be done is to award such sum, within the broad criterion of what is reasonable and in line with similar awards in comparable cases, as represents the court's best estimate of the plaintiff's general damages. Nor can the accuracy which can usually be achieved in the assessment of past loss of wages and of other past losses and expense which fall under the broad heading of special damages be matched when it comes to the future. The court cannot say precisely what will happen. It can only proceed by means of assumptions. The calculations which it then makes will involve the use of arithmetic as the multiplier is applied to the multiplicand. To that extent the exercise will give the impression of accuracy. But the accuracy of the result achieved by arithmetic will depend on the assumptions on which it has been based. In making these assumptions the court must do the best it can on the available evidence.

Nevertheless the object of the award of damages for future expenditure is to place the injured party as nearly as possible in the same financial position as he or she would have been in but for the accident. The aim is to award such a sum of money as will amount to no more, and at the same time no less, than the net loss. As Lord Oliver of Aylmerton said in Hodgson v. Trapp [1989] A.C. 807, 826D:

"Essentially what the court has to do is to calculate as best it can the sum of money which will on the one hand be adequate, by its capital and income, to provide annually for the injured person a sum equal to his estimated annual loss over the whole of the period during which that loss is likely to continue, but which, on the other hand, will not, at the end of that period, leave him in a better financial position than he would have been apart from the accident. Hence the conventional approach is to assess the amount notionally required to be laid out in the purchase of an annuity which will provide the annual amount needed for the whole period of loss."

The annuity approach requires that, once the necessary assumptions have been made, the calculation of the award will result in an amount which matches as accurately as possible the sum required over the entire period of the assumed loss. Whatever policy reasons there might have been for regarding it as acceptable that there may be less than a full recovery in regard to wage loss--and I should make it clear that I do not subscribe to that policy - there can be no good reason for a shortfall in the amount required for future care or to meet all the other outlays which have been rendered necessary by the disability. The calculation should make the best use of such tools to assist that process as are available.

Some of the assumptions which have to be made in the assessment of future loss are made at the stage of arriving at the multiplicand for each head of the claim. The selection of the right multiplier requires that further assumptions be made, so that the calculation can be related to the period of the annual loss or expense which is to be compensated for. The general point of principle which is raised in all three cases relates to the final stage in the selection of the multiplier. This is the choice of the interest rate, which represents the discount for the payment now of a lump sum to compensate for loss to be sustained over a period of years in the future.

The measure of the discount is the rate of return which can reasonably be expected on that sum if invested in such a way as to enable the plaintiff to meet the whole amount of the loss during the entire period which has been assumed for it by the expenditure of income together with capital. It was suggested for the defendants in the course of the argument that the plaintiff was under a duty to minimise the loss to be borne by the defendants by investing the lump sum prudently, that is to say with a view to obtaining a reasonable return for it. The duty to invest prudently was an important part of the reasoning which was designed to show that this meant a duty to invest in equities, and that the discount rate to be applied was that appropriate to the return to be expected on equities. But I do not think that the duty to minimise loss has anything to do with the selection of the appropriate discount rate. The stage at which the duty to minimise loss is to be applied is at the earlier stage when the court has to identify the amount of the annual sum to be compensated for and the period over which it is to be compensated. That exercise is over and done with when the time comes to select and apply the discount rate.

The assumptions to be made at the stage of selecting the discount rate are simply these. First, it is to be assumed that the lump sum will be invested in such a way as to enable the plaintiff to meet the whole amount of the losses or costs as they arise during the entire period while protecting the award against inflation, which can thus be left out of account. Secondly, it is to be assumed that that investment will produce a return which represents the market's view of the reward to be given for foregoing the use of the money in the meantime. This is the rate of interest to be expected where the investment is without risk, there being no question about the availability of the money when the investor requires repayment of the capital and there being no question of loss due to inflation.

In the past it does not appear to have been too difficult to find a sufficiently reliable guide to the rate of return to be expected by the application of these principles. It was thought that a rough and ready approach could be taken, and it was generally accepted that the rate to be applied was the rate of interest which could be obtained on the lump sum during periods of stable currency. Mention was made of the use in practice of the interest rates of 4 per cent. to 5 per cent. in times of stable currency by Lord Diplock in Mallett v. McMonagle [1970] A.C. 166, 176 and by both Lord Diplock and Lord Fraser of Tullybelton in Cookson v. Knowles [1979] A.C. 556, 571 and 576-577. In O'Brien's Curator Bonis v. British Steel Plc. 1991 S.C. 315, 320 I referred to an early example in Scotland of the use of the same two interest rates. That was the case of McKechnie v. Henderson (1858) 20 D. 551, where the sheriff said that he had arrived at the conclusion that the sum which he proposed to award for future wage loss was a reasonable compensation having regard to the yield which could be obtained on that sum at 4 per cent. and at 5 per cent. per annum.

It seems unlikely that the yield which was being used 140 years ago was related to the return which was to be expected from what we would now understand by investment in equities. It was more probably related to the rates of interest which were currently available in the market for depositing the money in a bank. In modern times interest rates have had to provide for inflation as well as a return by way of a reward to the lender or depositor. So the rate of interest which he can obtain is not a reliable guide to the rate to be obtained in times of stable currency. But the fact that index-linked government securities ("I.L.G.S.") are now available to the ordinary investor has altered the position fundamentally. In my opinion it would be wrong for the court to fail to take account of this form of investment. Indeed there are good grounds for regarding it as the most reliable guide to the return which, after allowing for inflation, a person who forgoes the use of his money by placing it in a secure investment can expect to receive. Both capital and income are protected against inflation, the investment is secure because it is underwritten by the Government and after one year the capital gain which is obtained by index-linking is tax-free.

This form of investment is, it should be added, not entirely without risk. The prices at which I.L.G.S. are available on the market from time to time rise and fall according to the market's expectation of the future pattern of inflation as against the movement of interest rates. If they are bought and sold in the short term these price movements may result in a gain or a loss of capital. In the long term however, particularly if held to the redemption date, they produce a return which is inflation-proof and can be relied upon. The same cannot be said, to the same degree of confidence, of investment in equities.

There is much to be said for the view that a better return can be obtained by the ordinary investor who invests his money in equities. But the rises and falls in the market value of equities are unpredictable both as to their timing and as to their amount. Further problems are presented by the cost of investment advice and by the possible impact of capital gains tax if reliance has to be placed on the capital gains which can be achieved to deal with inflation and to supplement the income return by way of dividend. Moreover the plaintiff who is receiving the amount of his future loss in the form of a lump sum is not an ordinary investor. The amount awarded under each head of his claim is calculated on the assumption that this part of his loss will have to be met entirely out of the relevant portion of the lump sum. So in his case the only form of investment which could be described as a prudent investment is one which will as nearly as possible guarantee the availability of the money as and when it is required. He cannot afford to wait until the market moves in his favour, or to sustain the loss of capital which would result if he was forced to sell at a price which did not match the inflation rate. In any event the discount rate is to be selected not by forecasting what the plaintiff will actually do with the money but by identifying the return which the market will give for forgoing the use of capital. The availability of I.L.G.S. provides the best guide to what is required. It is the best tool for this exercise which is available.

The strongest arguments which were advanced against the use of I.L.G.S. were their inflexibility and the possible lack of their availability in the long term. It was said that the precise calculations which this form of investment assumed left nothing over to meet the possibility that the plaintiff might survive for longer than had been assumed or might need to meet costs over a longer period. Reference was also made to the fact that the longest dated I.L.G.S. which is currently available will mature in 2030, which is too soon to meet the entire period of James Thomas's assumed lifespan. I think that there is no force in either of these objections. As for the first, the whole exercise is carried out upon an assumption that the period of the loss and the amount of it throughout that period has already been ascertained by the court. The only question is the rate of the discount for paying that amount in the form of a lump sum. It may be that in practice the plaintiff will decide to invest part of the award in equities to meet the risk of a shortfall in the long term, but that is a matter for the plaintiff not for the court. As for the second point, the evidence strongly favours the view that I.L.G.S. will continue to be issued for the foreseeable future in view of their utility in the market where a secure form of investment is required for inflation-linked claims.

For these reasons I consider that the conventional discount rate of 4 to 5 per cent., which the Court of Appeal held was appropriate having regard to the return to be expected from investment in equities, can no longer be regarded as appropriate. The discount rate should now be more closely related to the return to be expected from investment in I.L.G.S. As to what that rate should be, I think that there are three points which should be made. First, I think that it would be wrong to link the discount rate too precisely to the figures showing the average gross redemption yield on I.L.G.S. which are published each day in the financial press. These figures fluctuate almost daily, albeit within a relatively narrow band. Frequent changes in the discount rate are undesirable. In the interests of maintaining a reasonable element of stability to assist settlements, a broad view needs to be taken having regard to the range of figures over a substantial period. Secondly, a figure should be selected which will match the rates of interest on which the multipliers in the Ogden Tables are based, as the admissibility and relevance of the information contained in these Tables is now generally recognised. This means that the figure should be expressed to no greater a degree of accuracy than one-half of a decimal point. Thirdly, the rate should be one which has regard in a general way to taxation on the index-linked income return on the investment, after the appropriate allowances, up to and including the standard rate. This is to avoid the need for further calculations to take account of this factor, which can ordinarily be assumed to have been taken care of. The impact of higher rate tax on particular awards in exceptional cases should be dealt with in the manner described by Lord Oliver of Aylmerton in Hodgson v. Trapp [1989] 1 A.C. 807, 835D-E.

In my opinion the evidence as to the average gross redemption yield for the last three years on I.L.G.S. with lives over five years, assuming an inflation rate of 5 per cent., indicates that for the time being 3 per cent. is the appropriate rate of net return to be expected from the investment of the sums to be awarded to the plaintiffs as damages for their future pecuniary loss. Adjustments may have to be made to that rate in the light of significant changes in the yield on I.L.G.S. in the future. But these adjustments and the timing of them should now be left to the Lord Chancellor and, for Scotland, the Secretary of State for Scotland in the exercise of the power which was conferred on them by section 1 of the Damages Act 1996. I would apply the rate of 3 per cent. to the awards in each of the three cases which are before the House. This means that on this point I also would uphold the judgments of Dyson J. and Collins J. in the cases of Page and Thomas, and that I would alter the multiplier of 12.5 applied by His Honour Judge Wilcox in Wells v. Wells, which appears to have assumed a discount rate of 2.3 per cent., to the appropriate multiplier at a discount rate of 3 per cent. for the period of 15 years which he took as the period of the plaintiff's life expectancy.

On the remaining points I agree with the speech by my noble and learned friend Lord Lloyd of Berwick which I have had the benefit of reading in draft. I would make the same order as he has proposed.

LORD CLYDE

My Lords,

It has for a long time been a settled rule that in respect of any one cause of action a plaintiff, if he sues for damages, must sue in one action for all his loss, whether it be past, present or future, and whether it be certain or contingent. The rule is established both in England and in Scotland. No doubt it has some practical advantages. It puts some termination to litigation, an end which must be in the public interest. It conclusively severs any continuing obligation on the defendant towards the plaintiff, so that the former may regard the episode as closed and the latter is left free to dispose of his award as he may choose. But the finality which is achieved by the adoption of the rule carries with it an inevitable element of imprecision, particularly in respect of those elements in the claim which relate to periods in the future. A structured settlement may to some extent enable that problem to be overcome; but that solution can only be achieved by consent of the parties. It is not, however, suggested in the present case that the traditional method of calculating the award on the basis of a lump sum should be departed from, and the arguments for and against such a development have not been explored.

The purpose of the award for an injured plaintiff is, in so far as a sum of money can do so, to put him as nearly as possible in the same position as he was in before he was injured. One has to accept that the calculation will not altogether be exact, but one has to do the best one can to achieve as close an approximation as may be possible. The tendency over recent years has been to pursue with increasing sophistication a greater degree of particularity and precision. For quantifiable past financial loss that object may be achieved with some accuracy. In respect of pain and suffering money can only be a conventional medium of compensation and the assessment of it to cover the past and the future must necessarily be imprecise and open to differences of view. But the accumulation of precedent and experience and the careful analysis of the nature and effects of particular injuries can go a long way towards establishing levels of award which may be generally recognised and accepted as reasonable in particular circumstances. If necessary those levels may be open to adjustment or even correction from time to time by those courts which are best qualified to review what must in essence be a factual assessment of the kind sometimes referred to as a jury question. In relation to future pecuniary losses and expenses the uncertainties in the calculation are at their most severe. Here particularly means have been devised to minimise the imprecision. But despite the development of detailed tables and actuarial calculations there will always remain an element of uncertainty in prediction which may only in a rough and ready way satisfy the desire that justice should be done between both parties. The problem of sufficiently providing for the future care of the very severely disabled plaintiff gives rise to particular concern, since any inadequacy of the award in that respect could be particularly serious.

One clear principle is that what the successful plaintiff will in the event actually do with the award is irrelevant. As Lord Fraser of Tullybelton observed in Cookson v. Knowles [1979] A.C. 556, 577D it is for the plaintiff to decide how the award is to be applied. Whether he is proposing to invest it or spend it, or, more particularly, exactly how he is going to invest it or spend it, does not affect the calculation of the award. No distinction is recognised here between misers and spendthrifts. While it may be evident that there are certain ways in which he could prudently invest the award and other ways in which he could be imperilling his own future comfort by his employment of the award, the quantification of the sum to which he is entitled in compensation takes no account of the course which he may in the event choose to adopt.